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FLEXIBLE FUNDS: A MUST-HAVE IN VOLATILE CONDITIONS

Work, food and social habits are changing and so do investment products.

Investment products panels have never been so large and yet, the question remains: which framework to choose so as to optimize the potential return. Actually, the truth is that there is no ideal, standardized framework but rather specific schemes that are definitely best fitted according to the context.

In line to the current volatile backdrop, most investors are definitely unclear about where to allocate funds. In such endeavour, flexible funds offer attractive features for investors willing to capture most of markets growth but limit at the same time downward pressures.

 What is a flexible strategy?

To put it in a nutshell, flexible funds are funds that give more nimbless to portfolio managers, allowing them to choose how they allocate managed assets according to markets context. As such, flexible funds can be invested in any assets class (stock, bonds, money markets). Even if there’s no specific rule, stocks exposure usually vary from 10% to 50% or 60% to 100%. Some asset managers even offer a full flexibility approach where the stocks exposure can vary from 0 to 100% – This is the case of Dorval Finance which recently opened a “flexible management group” on Linkedin in order to open discussions about this growing trend in investment management.

 Why did Flexible Funds emerged?

Flexible management started to flourish in 2002-2003 but more incisively after the 2008 financial collapse due to the unprecedented accumulation of losses on stock markets. Flexible managers started to gain interest as part of investors thanks to a more tactical approach, aimed at providing downside protection and some sort of absolute return during volatile periods. Indeed, asset classes produce widely different returns from one period to another. As a matter of fact, a dynamic and tactical allocation usually offer better risk adjusted returns. This is even more true in current volatile conditions where anticipation and tactical approach are paramount.

 How risk is managed?

Flexible funds aim at protecting the invested capital. This is usually achieved through a proper arbitrage combined with a global macro approach that provide exposure to  growth periods and downward protection. In fine, a well managed flexible fund should have regular positive performances. Risk management is therefore paramount in order to precisely assess the best timing to alter the assets allocation.

 Similarly to any other investment strategy, choosing a flexible fund requires a good assessment of the asset manager : engine strategy, track record (that should demonstrate regular positive performances) and management team transparency about performances and investment choices.

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